The Key Metric for Lifestyle Business Success
When I moved to London many moons ago, I made one big mistake.
I chose money. I had come from auditing manufacturing and service businesses and had zero interest in banking until, you guessed it, money!
Even worse I chose the promise of money.
I chose the potential of a banking bonus over the fun job at a video games company. I chose to spend an hour commuting instead of 5 minutes walking from my front door. I chose regular 3 am finishes over a 9-5. I chose complex politics over small and simple. I chose money.
I often wonder if that decision was my Sliding Doors moment.
Chasing money cost me a lot – of stress, of time, of burnout, of feeling boxed in. But a lot of good also came out of that decision, a lot of knowledge and experience, a lot of travel, a lot of friends. I think I will always wonder what if…
You see a similar path in the entrepreneur world. Chasing the 5 figure months, posts about the 6 figure launch, and offers to guide you to the 7 or 8 figure year. There is nothing wrong with money or striving for it but for a lifestyle business, there is usually a different driver. We build businesses around travel, being home with the kids, or simply a slower-paced lifestyle with time off for hobbies.
So the most important metric in any lifestyle business is not your revenue, your costs, your profit, your margin. It's not even the number of hours you work, it's actually much more simple.
Finding your lifestyle business breakeven point
The baseline metric that you need to have engraved in your brain, for all of your business decisions, is the amount of money you need from the business to support your lifestyle. I like to call this the lifestyle business breakeven point.
The key metric for a lifestyle business is the breakeven point not in the sense of a traditional business breakeven where costs are equal to revenue but a lifestyle breakeven point where the business creates enough profit to support your lifestyle goals.
And yet, plans all seem to start with revenue numbers. Instead, shouldn’t we be measuring our success on a different scale.
It may seem strange to aim for a baseline number but consider the cost of going above that. In the quest for more revenue, we have more personal cost in time and energy which most likely goes against our lifestyle goal. But we also have more stress on the team and systems making the business as a whole less stable.
At a breakeven baseline, we can spend the extra time and energy we were using on traffic and leads and sales to think, create, and change course when needed. We can spend time developing the team to reduce their need for your time and energy. We have time and space to evaluate our processes and workflows and automate more. We can create a stable business that is ready to safely expand for the next lifestyle goal be it a house, a pregnancy or an all-inclusive private island vacation.
Usually, this measurement of business against lifestyle comes up when a change in lifestyle is on the horizon – moving house, getting married, getting divorced and becoming a single parent, starting a family, college fees looming and on and on as life hurls curveballs your way.
However, it should actually be at the heart of all of your decisions as CEO.
And for such an important metric it is ridiculously easy to calculate. Essentially your household budget (excl any salary, dividend, or withdrawal from the business) is the profit you need for the lifestyle business breakeven point.
If you added back the business’s costs (excl any salary to you), you would arrive at the breakeven revenue figure your business needs to hit.
What would you change?
Now just imagine for a minute that what you actually need is 50% of what you’ve set as your revenue goal for 2020. What would you change?
Would you need that new flashy sales funnel and all those launches or could you step back from being a sales machine to spend a little more time on client experience? And if you did what would that mean for referrals and client retention? And if they went up and you needed even less focus on sales what could you do with all that time?
Maybe you would finally sort out that one thing that keeps you staring at the ceiling at 3 am. Or maybe you could finally write that book or allocate some time to the passion project you’ve been dreaming about.
Maybe you could simply work less.
That might be a tough line to read. In the face of the hustle culture and the x figure launch machine, it’s almost become a dirty little secret to not be driven by money. That your income is not the measure of your impact. That you like being able to take Friday off to binge Bravo (just me?).
But that is the ultimate goal of the lifestyle business to work just enough to pay for your lifestyle. Building a lifestyle business is the ultimate work-life balance exercise.
The information contained above is provided for information purposes only. The contents of this article are not intended to amount to advice and you should not rely on any of the contents of this article. Professional advice should be obtained before taking or refraining from taking any action as a result of the contents of this article. Diane Mayor disclaims all liability and responsibility arising from any reliance placed on any of the contents of this article.